Pros and Cons of Rent to Own Homes

If you’ve ever asked yourself, “Should I rent or buy a house,” then rent-to-own homes might sound like the perfect middle-ground between the two.

Are they, though? Rent-to-own agreements have many benefits and drawbacks that set them apart from other methods of buying property.

Whether the positives outweigh the negatives is a question I leave up to you.

PRO: Lower Credit Standards

For aspiring homeowners with short-term credit issues, the rent-to-own property can be a godsend. That’s because landlords are usually willing to make rent-to-own agreements with individuals whose credit scores would otherwise preclude them from obtaining a mortgage loan.

Why? Because there’s less risk in renting out a property one already owns than a bank purchasing property on a buyer’s behalf with the hope that said buyer will pay them back over the course of several years.

CON: No Guaranteed Financing

Ideally, at the end of your rent-to-own period, you will be in a better financial situation than the one you started out in, enough that you’ll be eligible for a loan to cover the remaining cost of the property you want to buy. That doesn’t mean that will actually be the case,

However. Financing is not guaranteed, meaning that, for agreements without explicit renewal options, a person could put a lot of time and money into a property only to end up with nothing.

PRO: Take Your Home on a Test Drive

One of the advantages of buying a house outright is that (barring foreclosure) the property is yours, period. One of the disadvantages of buying a house outright is… the same exact thing.

Sometimes, the properties and neighborhoods we think we want to live in turn out to have serious issues that conflict with our lifestyles, issues that don’t become apparent until spending time there.

CON: Backing Out Loses Money

While it’s perfectly within the right of an aspiring homeowner to decide the property their renting isn’t for them after all, and while there usually aren’t any “penalties” for doing so, backing out of a rent-to-own agreement can result in losses of a different sort.

Simply put, because there is an expectation that a rental tenant will eventually transition into becoming a buyer, any rent credits and premium payments you make are non-refundable.

PRO: The Sale Price Won’t Change

Market fluctuations can cause housing prices to rise and fall dramatically. If you have your eye on a specific neighborhood and end up finding plenty of property there for an affordable price one year, you might be surprised when you return after a year of saving up only to find out that housing prices have skyrocketed. Rent-to-own agreements, fortunately, lock in a property’s sales price, preventing these kinds of unpleasant surprises.

CON: Your House Isn’t Yours… Yet

One of the biggest reasons many people aspire to homeownership is because of the level of independence it provides. A rent-to-own home might seem for intents and purposes to be yours… except it really isn’t.

The truth is, your house is still the property of your landlord, which means they have control over the property, not you. It also means they can potentially lose the property, which means you lose it also.

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About FinanceGAB

Ajeet Sharma is a financial blogger and I am blogging since 2017. Financegab is a personal blog dedicated to personal finance. The main aim of this blog to help people to make well-informed financial decisions.
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